First, stop doing harm

“I can’t see it,” Olympia Snowe said after considering the Medicare buy-in proposal for a day or two. “I am talking to a lot of my providers this afternoon and I know they are mighty unhappy.”

"My providers." Think about that for a second. As a smart friend noted, imagine if she had said "my insurers." But then, no one would ever say "my insurers." Insurers, we understand, are the bad guys. Providers are the good guys. They're the doctors and the hospitals and the people who see you when you're sick and scared and need help. They're the people who treat the insured and the uninsured alike, who do amazing things and save countless lives and, to be sure, make a lot of money for their trouble.

But health care is not zero-sum villainy. This post is not arguing that insurers are better than you think and providers worse. This post is arguing that nature of both groups is beside the point. They work within the market the government constructs. And both the market for insurance and the market for health care need reform. But we're comfortable reforming only the market for insurance, and so we are leaving half -- or maybe more than half -- the job undone.

People dislike insurers for two primary reasons: They are evil and they are expensive. But only one of those two is really their fault.

Insurers seem evil because of the marketplace in which they operate. The healthy don't buy as much insurance as the sick. The sick aren't as profitable as the healthy. Insurers, like all private firms, are very simple: They pursue profit like a pig sniffing after truffles. It is up to society to train them, and we do that by setting rules.

Health-care reform will establish many, if not all, of those rules. The individual mandate will mean the healthy cannot hang back until they become the sick. Insurers, for their part, will not be able to discard the sick in favor of the healthy. Perhaps more importantly, risk adjustment -- which compensates insurers with sicker customers by taxing insurers who have cherrypicked healthier people -- will end the days when it is profitable to do so. As the exchanges open up -- if they open up, more to the point -- all of this will work better and more smoothly. This is how the Netherlands' health-care system looks, and few would accuse their insurers of being evil.

But as for the expense, insurers are expensive because they pay for health care, and health care is expensive. This is not, generally speaking, the fault of insurers, be they public or private. Health care is expensive because it is an industry in which highly skilled professionals prescribe extremely costly treatments to people who are in no condition to say no, and who aren't paying the bill anyway.

If the market for insurance encourages insurers to be evil, the market for providers encourages providers to be expensive. Much like selling, say, falafel, medicine is a volume industry. Every time another unit is sold, the doctor or hospital pockets a bit more money. But that's not the only incentive to do more rather than less. Patients want cures, and they want as few side-effects and as much cutting-edge technology as possible. And doctors, being caring human beings, want to cure their patients, and are willing to try very hard, at great expense, even when the cost is very high. Saving the occasional life is a success, while selling an enormous amount of medical services in an unsuccessful effort to save a life is not a failure.

Here too the rules should be changed. Doctors should be paid salaries, with bonuses for good outcomes. They should have more evidence and firmer standards, so they prescribe fewer treatments that don't work. They should be punished for bad outcomes, both to save money and to reduce the number of bad outcomes.

But perhaps most importantly, they should be forced to work in a way that doesn't hurt society. That, after all, is the guiding principle behind the insurance reforms: Insurers will have to live with a market that society can live with. Similarly, providers will have to live within a market that society can afford. That will mean a strict budget, at least within the federal programs (and over time, as the private programs become unaffordable, they will probably come on budget as well).

Providers won't like this, of course. It means adjusting to a lot less revenue than they currently expect to have, and no one quite knows how to do that. People run businesses atop the assumption of growth, not contraction. And the complaints are understandable: They haven't been doing anything wrong, and don't feel like they should be punished.

But this isn't punishment. This is, well, medicine. It's that or national bankruptcy. And the problem, if left untreated, will only get worse, and the eventual correction, when it comes, will only be more severe. That, however, is exactly what they're asking Snowe, and the rest of Congress, to permit. The fear with Medicare buy-in is that Medicare pays somewhat lower rates than private insurers because it tries to live within a budget, even if it fails. But like it or not, that's the future, or one variant of it. And as most providers know, putting a scary diagnosis off is generally not a good idea.

Once again- we have a cost problem in the US that the democrats are trying to treat as an insurance problem because insurers are easier to demonize. This bill really does nothing at all to affect the core cost problem and thats why I cannot support it at all.

Health insurers are in fact evil. I've worked in this industry and the guys running the show ARE evil. In a theoretical sense, any health insurer would behave in a way that appears evil but is objectively just the way the game is played. However, in reality, the leaders at the insurance company I worked for go well beyond the theoretical. They are evil and do and have worked at other companies.

As for providers of health care, people want their doctors to be well paid. However, "well paid" is ill defined in the minds of most Americans since they buy insurance and the insurance pays the doctors. That and people don't know enough about Taiwan's system and expenditure on it.

Thoughtful post. I agree with almost the whole thing. But its worth putting a little more context around doctors, and add a few other comments.

"Doctors should be paid salaries, with bonuses for good outcomes. They should have more evidence and firmer standards, so they prescribe fewer treatments that don't work. They should be punished for bad outcomes, both to save money and to reduce the number of bad outcomes."

Agreed. The problem with Medicare, however, is that it doesn't aim to do any of that. Doing what you suggest is very hard to do. So not surprisingly, Medicare is comfortable with just simple pricing pressures using leverage and calling it a day. So its not like a more rational compensation system is on the horizon-- particularly from Medicare. One underdiscussed topic is how far behind Medicare is around paying for outcomes. There are a number of payers that are moving much further in the direction that you suggest.

-- So instead, you've got a proposal to push physicians to have patients in the 55-64 category be accepted via Medicare, using the hammer approach to reimbursement, rather than anything sensible that you've suggested. So even physicians that would agree that the reimbursement system should be reformed, could still reasonably be concerned with Medicare buy-in. The political reality is that as long as costs are reasonable, no one in DC really cares is physicians are getting fairly compensated. As long as the docs keep seeing Medicare patients, politicians aren't going to reform the system out of the goodness of their health wonkish heart.

One other piece around physicians. If you're going to change the piece around compensation, it needs to be coupled with our reforms for physicians.

-- Medical training reforms. The hours in training are brutal. Few people go through what doctors do to get to the point of being a physician. That doesn't excuse bad practices, but acknowledging and fixing this system (bottom line: residents are cheap labor for hospitals) makes physician reforms fairer.

-- Tort reform. The system doesn't work. More importantly, no doctor wants to harm patients. We need a system that encourages that behavior, reinforces that behavior and fixes that behavior. Bottom line: reducing medical errors does not need a legal solution. It needs a systems approach to error reduction.

There are a couple of others that I can mention later. The point is, the full range of issues with medical practice need to be addressed not simply the dollars.

Sometimes I wonder if Olympia Snow is a complete idiot. She wants to control health care costs but do so without affecting anyone's income? Reducing the cost of the system means less money in it. Less money in the system means either fewer business with the same income or less income for all.

So now I guess we know which side of that equation she truly supports, and it isn't her constituents.

Canada pays doctors through fee for service, not through salaries. And yet Canada's single payer system has far lower costs. Hence, it is hard to see how insurers are not part of the problem. Can you address this Ezra?

What would incentivize insurers to bargain harder with providers? That's what really needs to happen to have cost control. Right now, insurers have no motivation to control costs because they pass the costs to consumers through higher premiums and deductibles. If insurers' premiums rose more than inflation, allow people to go to a single payer system like medicare so that there is some meaningful consequence for them not negotiating better deals from providers. A simple solution to the cost control problem. Allow medicare to bargain for better rates too, to slow the growth in costs there. Expanding medical school enrollments and subsidizing students if they agree to pay schedules for procedures and other services will also put some badly needed competition into the provider market. Or just import a lot of qualified doctors from abroad. Hey, we were happy to import goods from lower cost providers. Why not let professionals face the same kind of downward pressures that factory workers have been facing for the last 30 years. This might spur providers to move away from fee for service to a more cost effective model.

"Doctors should be paid salaries, with bonuses for good outcomes. They should have more evidence and firmer standards, so they prescribe fewer treatments that don't work. They should be punished for bad outcomes, both to save money and to reduce the number of bad outcomes."

I'm deeply skeptical of bonuses as incentives for for good outcomes/ disincentives for bad outcomes. If a doctor practices in a community with worse than average health doc will lose money. If a doc has a bedside manner or runs his practiced such that he treats a less healthy slice of an otherwise healthy community, doc loses money. When I apply my ancient recollection of econ 101 to the medical cost problem we need to increase the supply of doctors and other medical resources to drive down the price. The long term way to drive down cost and improve service in poorer sicker communities is to open dozens more medical schools, site new teaching hospitals in cites without them. I recall many bright, hard working college friends that wanted to be doctors and didn't get in.

srw3 - I think you have a deeply flawed view of health insurance. There are very strong incentives for insurers to bargain harder with providers. An insurer who truly has better rates with providers can offer the same policy at a lower price than its competitors, leading to market share gains, more profit, and better returns for shareholders. To think that this does not motivate insurance executives is incorrect.

That doing this is very difficult speaks to the power of many providers and the unwillingness of many consumers to put up with restrictions that actually lower costs (such as narrow networks, prmiary care gatekeepers, etc).

The politics of the situation are such that you can get coverage or cost control. Doing both at once is a fool's errand b/c you need EITHER the insurers or the docs on your side. As a result, focusing on Medicare's cost controls here seems foolish to me -- a more important consideration is the fact that this VERY OFTEN UNINSURED group will now have access to guaranteed coverage.

A self-employed 55 year old cancer survivor basically can't pay for high-quality care today; under Medicare he could. Under private insurance he could pay even MORE. But if the docs kill this bill they'll be stuck with whatever he can scrape together (just like now). And it's not like Medicare reimbursements are a pittance -- there are whole sub-specialties based on them.

As an aside, I have a LOT of sympathy for the position that there need to be more doctors out there. The AMA (like the ABA and many other professional organizations) have operated to restrict the number of new graduates in order to keep reimbursement rates high. At some point we are going to need to address this supply crunch. Either we need more docs, or we need to let non-docs do more stuff -- but the current situation of jealously clinging to certain revenue streams while unilaterally restricting supply has to end.

I've never quite understood how you pay a GP Doctor a salary. Most of them run their own practice. I see how that could work in the hospital setting, but how does that work in the private doctor practice setting? You're not proposing that the gov't or insurers have doctors as their employees?

NS12345, I think you are missing the point. You can't compare the current market to what it would be under HCR. The 55 yr old cancer survivor would be guaranteed issue of a policy for the same price as a 55 yr old with a clean medical history. That's the whole point of the legislation. Insurers could not underwrite based upon medical history.

NS12345, I think you are missing the point. You can't compare the current market to what it would be under HCR. The 55 yr old cancer survivor would be guaranteed issue of a policy for the same price as a 55 yr old with a clean medical history. That's the whole point of the legislation. Insurers could not underwrite based upon medical history.

you know what would do it? Telling providers that if they don't like a fee schedule that not only would they be forced out of insurance company X's network but also every other one.

YOu want another one. Fix the out of network reimbursement policies that allow payment of usual and customary for out of network providers since right now providers are dropping out of network and realizing GREATER profits because the rules are slanted in their favor. UCR rules were put in place to safeguard patients but now they're being circumvented by doctors to make profits. Does anyone not question why and how in this economy surgical centers can continue to open at an alarming rate? Because they're funded via out of network reimbursements and in turn increase our cost at a dramatic level.

Look at BCBS of MA. They went to capitation a couple years ago and also included bonuses for good outcomes. Within a year several major hospitals bargained out of that capitation.

The government does need to set prices and that will get cost down but be very careful how you structure it because you don't want to disincentivize doctors from practicing medicine anymore. That's why as has been mentioned above you need to find a way to forgive doctors medical school debts to a certain percentage so they don't have to charge such high amounts. I have no problem with doctors making more than most every profession. Its just that it cannot continue to cripple our healthcare system like it has been for the last 5-10 years.

Perhaps a system of generous scholarships tied to accepting Medicare, Medicaid or practicing in under-served communities. I believe a few billion dollars in scholarships now would pay back 10x in 10 to 15 years down the road. Tough to sell on that time scale.

It seems, however that Ben "Mutual of Omaha" Nelson and Joe "the medical lobbyist's husband" Lieberman are determined NOT to hear anything nearly so sensible, leading to an endgame wherein Obama and Reid are forced at last to take the reconciliation revolver from the drawer. We shall see . . .

People dislike insurers for two primary reasons: They are evil and they are expensive. But only one of those two is really their fault.

Actually they're only "evil" in that context to those claims that are denied because of pre-ex or recision or whatever reason. They're not evil to the person who pays $900 a month for family coverage and had millions of dollars in benefits paid for. But then again those people don't ever speak up and say "Thank God I had insurer X". I would have gone bankrupt without them.

And expensive is a relative figure. Is $1000 a month a lot for someone who would pay $1 million dollars for open heart surgery and rehab that follows?? I'd say that's a bargain.

Get to guaranteed issue, get the stronger house individual mandate and cover everyone in the system (or as close to everyone as possible) and then we'll see costs start to stabilize.

Come on, guys -- and gals -- insurers are evil? What an unsophisticated view of the world that is. They operate very rationally within the rules we as a society give them. Why stoke the fires of dissent over terms like "evil"? Not necessary for a decent discussion.

Ezra Klein makes a few valid points, but he presents them in such a sway as to present a false dichotomy. According to Klein, Obamacare is necessary because "[It] is, well, medicine. It's that or national bankruptcy." While it's undoubtedly true that the US healthcare is system is fundamentally flawed, increased government involvement in the sector (combined with government imposed price controls and compensation structures) is certainly not the only possible solution to the problem.

In fact, the entire problem with healthcare in America is that the government is already too involved. The government pays for about 50% of all US medical expenses, the industry is heavily regulated in favor of the old and sick, and the tax code is designed to punish young people, the poor, and people who change jobs.

A cost-free, alternative way to ameliorate the problems with the current system would be to a) tax employer-provided health insurance as compensation, b) allow trade in insurance across state lines, and c) limit punitive (not compensatory) damages in malpractice litigation. Such a policy would simultaneously increase tax revenue, decrease the cost of insurance to the vast majority of Americans (by allowing free trade across state lines), and reduce the ultimate cost of medicine (the change in the tax code would lead people to purchase higher deductible individual plans, while capping punitive damages would limit defensive medicine and limit the cost of malpractice premiums). Contrary to Klein's assertion, Obamacare is not the ONLY way to improve the US health care system. Actually, Obamacare will probably make things even worse.

On a side note, the US legal system is at least as bad as the US medical system (and probably a lot worse). Why doesn't Klein propose mandating that lawyers all be paid a flat salary - with bonuses for particularly good performance?

Did it occur to Snowe to talk to her constituents as well as "her" providers? They have taken away the public option, essentially eliminated the employer mandate, substantially weakened the individual mandate, added annual benefit limits (in the Senate bill, per Kos), gutted the Medicare commission, and generally enfeebled this bill to the point where it's a travesty to call it reform or, for that matter, universal health care. Does anybody give a damn?

The entity doing the worst harm in the current system isn't insurers, or providers, but government itself. Government ignores malpractice tort abuse, which leads to obscene malpractice insurance rates, forcing doctors to charge patients more to break even. Government forbids selling health insurance over state lines, preventing effective competition in that market. Government Medicare and Medicaid pay below-market rates, forcing cost-shifting to paying customers by providers. Government encourages employer-provided health insurance, screwing over anyone who loses his or her job due to
catastrophic illness. Government allows 100% reimbursement to patients, disconnecting customers from the market.

So your solution to the problem is to effectively expropriate the labor of every medical professional, by compelling them to serve patients in exchange for whatever pittance the government deigns to pay them? Do you really expect that to end well?

"This is how the Netherlands' health-care system looks, and few would accuse their insurers of being evil."

Dutch insurers are well-trained dogs. American insurers are not.

While you might take the Cesar Milan line that all dogs can be saved, it's at least as arguable that some dogs are beyond redemption, and just because they're big and scary doesn't mean that they don't need to be put down.

"Such a policy would simultaneously increase tax revenue, decrease the cost of insurance to the vast majority of Americans (by allowing free trade across state lines), and reduce the ultimate cost of medicine"

Capping doctors' salaries will discourage the best and the brightest from seeking a medical career.

Opening up more positions in medical schools to increase the supply of doctors might bring down the average doctor's salary a little, but that would come at a price. Namely, the average quality of physician care would go down. Prospective medical students who don't make the cut for admission to medical school are the ones who have the worst qualifying test scores. They would finish near or at the bottom of their class. So if you make medical schools bigger, you will generally grow the schools from the bottom of the class (particularly if you simultaneously "force" docs to work in a way that conforms to liberal collectivist fantasies.)

"But as for the expense, insurers are expensive because they pay for health care, and health care is expensive."

There's another thing that makes insurance expensive: insurers pay corporate income tax on their profits. Average gross margin for a health care insurance company is about 27%, while net margin is 6-7%. The difference is made up of federal, state, and local income taxes.

If you wanted to reduce private insurance costs by 10% right now, the easiest way to do it would be to give the insurance companies tax-free status on their health care profits. Sure, they'd try to improve their net margins, but I'll bet that even the current level of competition would only let them increase it to 8-9%.

Of course, taxes would have to increase somewhere else to make up the revenue shortfall, but you can't have health care cost reduction without consumers getting an accurate picture of what it actually costs. Furthermore, all of you fans of a progressive tax system should like this one; shifting the tax cost from all consumers (regressive) to, say, individuals via income tax (progressive), sounds like a win.

"Doctors should be paid salaries, with bonuses for good outcomes. They should have more evidence and firmer standards, so they prescribe fewer treatments that don't work. They should be punished for bad outcomes, both to save money and to reduce the number of bad outcomes."

I challenge Ezra to shadow a physician for a week and to question and document all treatments, therapies, and procedures, and then get back to us about how many instances of quackery he saw in the field. Who gets to judge the definition of bad outcome. When an overweight patient with high blood pressure and diabetes shows up for an appointment heavier than on his previous visit and having made no lifestyle changes in the form of diet and exercise, who gets blamed for that?

Well, tax revenue would go up because treating employer provided health insurance would remove a tax deduction without replacing it with something else. That might not be popular, but as a standalone policy it certainly would not cause tax revenue to fall. It's a tautology.

I assume that you primarily take issue with the statement that health care costs would fall. Given your disparaging remarks about my username, I'm going to take a wild stab and guess that you have also failed to grasp that is a tautology. It's a little too complicated to explain in depth (and I doubt any explanation would suit you), but

1) Malpractice litigation increases the cost of medicine. Even if you think it's a good thing because it increases quality, no economist with whom I am familiar seriously argues that it decreases the cost of practicing medicine. The most common argument on the left is that its impact on cost is overstated. Nevertheless, it certainly increases cost; it does not decrease them.

2)It's a given in economics that eliminating barrier to trade reduces costs to consumer. Even Paul Krugman will agree with that. While it's possible costs will go up for some consumers, on the whole consumers will be better off. In the particular case of the insurance industry, it's very unlikely that costs would go up for any consumers because the supply curve is highly inelastic - it's basically a function of access to capital which is a national or even international market.

3) The current system forces young people to overspend on insurance by offering them a tax deduction only if they receive insurance through their employer. Hence, their premiums subsidize the premiums paid by older workers. Those individuals would be better off in a system that did not discriminate against individual insurance policies.

Ultimately, though, these arguments won't matter to you. I'm not a health care economist, so I don't have a thorough knowledge of all of the specific facts and figures for this industry. However, in my short post I've offered a defense of my position that is at least as cogent as Ezra Klein's completely unsupported piece, and is far more substantive than your "What's your proof" post. Let me ask you, what's your proof that Obamacare is better than actually creating a freer healthcare market?

You miss the point. I'm still waiting for someone of the libertarian persuasion to point to working examples of their "freer healthcare market" in the real world.

I happen to think that whatever emerges from Congress -- let's call it Liebercare, shall we, for accuracy's sake? -- will be a dog's breakfast, but I also think that the rote "get government out of healthcare" argument is fantastical and self-indulgent.

To poke a hole in just one of your premises, the most likely outcome of "free trade across state lines" in health insurance would be the transformation of a small state into the equivalent of South Dakota for the credit card industry, with the resultant concentration of insurers under a lax regulatory regime. The up-front costs might be lower, but the loopholes and cop-outs would be greater:

Because I choose to not have health insurance I'm somehow shirking my responsibilities for what? Paying for others health care? Us evil healthy people, paying our health expenses out of pocket instead of wasting thousands of dollars a year to cover things we don't need. That's like buying auto insurance when you don't own a car.

I'd gladly buy catastrophic coverage, in case of something major, but I don't even have that option. I should buy a plan that covers visits and prescriptions when I've been to the doc twice in eight years to offset other peoples costs? How about I have the freedom to choose whether or not I want insurance, and if I decide to get insurance when I'm actually going to be using it, I get priced accordingly.

It may be too late to comment here, but it really bugs me when people make dogmatic statement and provide no backing for them It is especially annoying when there is clearly available data that shows these statements are false.

Let's take the statements that tort reform saves money. 30 states have some kind of tort reform. Did their costs or the frequency of test and treatments go down? Are these parameters any lower than those of states without tort reform? The answer is a resounding no! In fact in some states costs went UP after tort reform. The data can be found at pg 150ff in
http://www.cbo.gov/ftpdocs/99xx/doc9924/12-18-KeyIssues.pdf.

Now let's look at the reasonable idea that we would save money by eliminating fee for service. Where is the supporting data? Japan, Germany, Canada, France, Australia, and New Zealand all have a fee for service system, and each gets better health care at much lower cost than the US. (OECD).

People keep saying that patients have to have a better idea of costs so they can be good consumers and keep costs down Sounds good, but where is the data? Again in many other countries, consumers are completely insulated from costs and they get better care at much lower costs. (again OECD).

O.K. I'm getting tired, but here is some homework for youse guys. Suppose a physician comes into practice with a $200,000 debt at say 6% payable over say 15 Years. What is monthly payment and can he mange that on a staring income of $168,000 (average starting income for family docs cf many salary surveys) which rises to am average income of over $330,000 for all physicians? When physicians and hospitals say that Medicare pays too little who checks their costs figures? What kind of compensation do these figures assume? How much do they spend on very expensive devices whose efficiency is unknown?

You have to keep asking the question how can other countries with a universal government run system (ALL other industrialized countries) get better health care as measured by all 16 of the bottom line public health statistics at HALF the cost we pay?

A few people have addressed this above, but I wanted to reiterate it here. I am a conservative currently enrolled in medical school, for full disclosure.

I was with Ezra for most of the post. Reading the first half, I would've thought he was against the Medicare expansion, because he wants physicians to be paid a salary, with bonuses for good outcomes and penalties for bad. While I think the bonuses and penalties are a sticky area because I know physicians don't have nearly the control everyone seems to think they have, I think it is a viable starting point, and is supported and expanded by in the Mayo Clinic Model. This model, which has been expanded to many places in the country in the private market, basically requires peer review sessions, bases payments on a salary with bonuses, and has demonstrably increased efficiency.

Medicare expansion is not the answer. Most people do not seem to realize that most health insurance companies base their reimbursement rates on Medicare schedules. Medicare is the main driver of the fee for service model. This is the point Ezra seems to miss in his otherwise well worded article.

He also doesn't seem to realize that there is a bottom limit of payments for physicians. In fact, as quoted above, the notably efficient Mayo Clinic alone lost $840 million last year due to Medicare reimbursements being below marginal cost. This doesn't mean they lost profit; it means that because the Mayo Clinic prides itself on ordering as few tests as possible in order to maximize efficiency in diagnosis and treatment, they were punished to the tune of $840 million, money they paid to treat patients. In fact, as they state here:

As of January 1st, the Mayo Clinic will be closing it's primary care practices to Medicare in Arizona, Nebraska, and Montana. The Mayo Clinic is a not-for-profit company, This means they are so underpaid from Medicare, they can no longer afford to provide care to Medicare patients. And this is the system Ezra wants to expand?

I believe something needs to be done. But currently, the government and liberals that began with Atul Gawande, the Dartmouth Study, and Health Care reform have gotten distracted by Universal Health Care. The two are not the same, and if we want to not go bankrupt, we need to reform Health Care along the lines of Dr. Gawande's and the Mayo Clinic's proposals before we further entrench the current inefficient system with Universal Health Care.